A broad sell-off hit shares of Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday, as the price dropped to a five-month low in the morning session as one of the chip maker’s leading customers revised downward its second quarter financial forecast, provoking concerns about rising inventories.
Nvidia Corp, the world’s second-biggest maker of computer graphics chips, updated its forecast for the second quarter ending July 27 on Wednesday, saying that both revenue and gross margins would decrease more than previously thought.
TSMC, the world’s largest made-to-order chip maker, saw its share price drop 4.86 percent to close at NT$58.8 (US$1.94) on the Taiwan Stock Exchange, under-performing the TAIEX’s 0.55 percent increase yesterday. So far this year, TSMC stock has declined 5.17 percent, compared with a 13.08 percent fall on the TAIEX, Taiwan Stock Exchange data showed.
Nvidia, which accounts for approximately 8 percent to 10 percent of TSMC revenues, said in a statement on its Web site that revenue this quarter was expected to decline to between US$875 million and US$950 million, lower than the US$1.0925 billion forecast in May.
The US company attributed the decrease in revenues and gross margin to end-market weakness around the world, the delayed delivery of next generation media and communications processors (MCPs) and price adjustments in its graphics processing unit (GPU) products to respond to competitive pressure, the statement said.
“On growing concerns over rising inventories at TSMC’s top customers, we are lowering our target price to NT$65 [mid to peak-cycle valuation target] from NT$68,” Andrew Lu (陸行之), an analyst with Citigroup Global Markets in Taipei, wrote in a client note yesterday.
In response, TSMC chief financial officer Lora Ho (何麗梅) said yesterday in a filing to the Taiwan Stock Exchange that the company’s second quarter revenues, gross profit margin and operating profit margin were all in line with, or slightly higher than, the guidance issued at the end of April.
TSMC told investors on April 29 that it expected second quarter revenues to be between NT$87 billion and NT$89 billion. The company also forecast its gross margin would be between 43 percent and 45 percent during the same quarter, while its operating margin would be between 32 percent and 34 percent.
As for the outlook for the third quarter, “revenue is expected to grow from the second quarter, while gross profit margin and operating profit margin are expected to maintain second quarter levels,” Ho said.
Investors yesterday were also concerned that TSMC would abandon its planned share buyback, whereby it would cancel the repurchased shares in a bid to support its falling share price. The buyback was announced on May 13 as part of a plan to facilitate Royal Philips Electronics NV’s orderly exit from its shareholding in TSMC.
The company said yesterday that it could not carry out any buyback this month to comply with stock exchange regulations, after the company set July 22 as its dividend record date.
“As required by the Taiwan Securities and Futures Bureau, a company may not repurchase shares between the announcement of its ex-dividend date and two days before the register of shareholders is frozen,” it said.
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